Translation: Original published in Finnish on 1/3/2025 at 7:00 am EET.

Nexstim's strong 2024 culminated in a seasonally busy Q4 sales season. The total number of system sales reported for the year was 28, up from 24 last year and the best sales year in Nexstim's history. The final order amount will be disclosed in the financial statements and may be even higher. We are upgrading our forecasts based on very strong sales and are postponing the Sinaptica contract, which our models had for H2'24, by six months. The valuation picture has become more challenging with the sharp rise in the share price. We raise the target price to EUR 7.0 (was EUR 6.2) and lower our recommendation to Reduce (was Accumulate). 

Sales also in good shape at the end of the year

The end of the year is seasonally strong for Nexstim as hospitals and research institutes make their acquisitions. According to the company's press releases, a total of at least 28 systems were sold during 2024 (2023: 24 systems), which is a single-year sales record. There may be more orders, as not all sales are necessarily announced, and the final number will be revealed in the financial statements. During H2, 18 orders were announced, which also exceeds the comparison period (H2’23: 16 systems).

Expectations for a good year, but its direction will be significantly influenced by the outcome of the Sinaptica deal

We expect strong growth in the year ahead, visibility for which is provided by continued business growth through an increased installed base, as well as the guaranteed EBITDA from the recent BrainLab agreement. The guaranteed amount is 4 MEUR for the year 2025 and according to the company's management, the guarantee seems to have continuity beyond this year, although the commercial details of the contract are not public. On the other hand, there is also a high degree of binarity in the projections due to the Sinaptica contract. Nexstim and Sinaptica signed a letter of intent in June 2024. The final agreement, if implemented, would mean cumulative revenue of 6 MEUR for Nexstim over two years and, in the long term, additional potential for TMS treatments for Alzheimer's disease. We expect a 2/3 probability that the deal will go through, which is also included in our models.

Sales forecasts raised - Sinaptica deal shifted in forecasts

Previously, the signing of the Sinaptica contract and its advance payments were included in our models in H2'24. However, this schedule did not materialize, so we are postponing our estimate by six months to H1'25. The postponement of the contract timing has a downward impact on our 2024 forecasts. Our expectations on the content of the agreement remain unaffected, so the practical impact of the delay will be very limited. Given the good system sales in 2024, we are raising our estimates for system sales and recurring revenue in the next few years.

The price rally seems excessive

With our expectations of strong growth in the coming year, the EV/S ratio is 4.6x, which is at the upper end of our acceptable range of 3-5x. We think the ratio is a bit high given the risk associated with the low visibility and the binary element that the Sinaptica contract introduces.  However, we also see potential in the stock if the Sinaptica deal goes through as agreed in the letter of intent. The DCF model suggests that the stock is fully priced. In our view, the sharp rise in the share price over the last year (around 60% in the last month) has been largely well-deserved, thanks to the improved growth outlook and the higher acceptable prices brought about by the turnaround in cash flows. However, we believe that the risk/reward ratio is currently somewhat lacking.